A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1

Explanatory Statement

General Outline of Instrument

1. This determination is made under subsection 75-35(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the ‘GST Act’).
2. This determination specifies requirements for making valuations for the purposes of the margin scheme under Division 75 of the GST Act.
3. The determination is a Legislative Instrument for the purposes of the Legislative Instruments Act 2003.
4. All legislative references in this explanatory statement are to provisions in the GST Act, unless otherwise specified.

What this determination is about

5.                  Under Division 75 the margin scheme may be applied to work out the GST on certain taxable supplies of real property. The amount of GST on the supply is 1/11th of the margin for the supply.

6.                  Under subsection 75-10(2), the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the freehold interest, unit or lease in question (referred to in this explanatory statement as the ‘consideration method’). However, subsection 75-10(3) and section 75-11 provide that in certain circumstances the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the relevant freehold interest, stratum unit or long‑term lease (referred to in this explanatory statement as ‘the valuation method’). For a valuation to be an approved valuation, section 75‑35 provides that the valuation must comply with the requirements determined in writing by the Commissioner of Taxation (‘the Commissioner’) for making valuations for the purposes of Division 75.

7.                  This determination specifies requirements for making valuations for the purposes of Division 75. The requirements for making valuations of the kind referred to in this determination as methods 1, 2 and 3 apply to valuations produced by the supplier for the purposes of subsection 75-10(3) and section 75-11. The requirements for making valuations referred to in this determination under method 4 apply to valuations obtained by the Commissioner in specified circumstances for the purposes of subsection 75-10(3).

8.                  This determination also specifies requirements for making valuations for the purpose of working out an increasing adjustment relating to input tax credit entitlement under section 75-22.

Date of effect

9.                  This determination commences on 1 March 2010. 

10.              The requirements for making valuations under methods 1, 2 and 3 apply to valuations made for the purposes of applying the margin scheme in working out the amount of GST on certain taxable supplies of real property made on or after 1 March 2010.

11.              The requirements for making valuations under method 4 apply to valuations made for the purposes of applying the margin scheme in working out the amount of GST on certain taxable supplies of real property made before, and on or after, 1 March 2010.

Retrospective application of valuation method 4

12.              While method 4 has a retrospective application to the extent that it applies, in limited circumstances, to supplies made before 1 March 2010, it does not have an adverse effect on the rights or liabilities of any person other than the Commonwealth.[1] This is mainly because:

• the retrospective application of method 4 will only ever produce a lesser GST liability for the taxpayer than would otherwise have arisen where the taxpayer fails to produce an approved valuation and subsection 75‑10(2) applies; and
• the taxpayer retains the right to object under Part IVC of the Taxation Administration Act 1953 (‘the TAA’) to the indirect tax assessment the Commissioner makes of the taxpayer’s net amount for a particular tax period as a result of calculating the margin for the supply of the real property using a valuation obtained under method 4 of this determination.

13.              The background to method 4 is discussed at paragraphs 20 to 30 below.

Related determinations

14.              Other determinations that have been made in determining the requirements for making valuations for the purposes of Division 75 of the GST Act are as follows:

What is the effect of this determination?

15.              A valuation made in accordance with the requirements specified in this determination is an approved valuation under section 75-35. It may be relied upon by suppliers calculating the margin for taxable supplies of real property made on or after 1 March 2010 under paragraph 75-10(3)(b), and where applicable, under section 75‑11. It may also be relied upon by suppliers calculating an increasing adjustment under section 75-22.

16.              The Commissioner may in specified circumstances obtain a valuation that is an approved valuation to calculate the margin for taxable supplies of real property made before, and on or after, 1 March 2010 under subsection 75‑10(3).

17.              As a result of this determination, MSV 2005/3 does not apply to valuations made for the purposes of applying the margin scheme in working out the amount of GST on taxable supplies of real property made on or after 1 March 2010.

18.              For the purposes of determining whether a valuation produced by the supplier to the Commissioner is an approved valuation in respect of a taxable supply of real property made before 1 March 2010, the requirements under the relevant prior margin scheme valuation requirements determination continue to apply.

19.              The compliance cost impact of this determination is low as the determination will affect only a small proportion of taxpayers. Other than a need for some taxpayers to be aware of the application of the determination, there is no additional compliance burden for taxpayers.

Background to valuation method 4

20.              If a taxpayer makes a taxable supply of real property being a freehold interest in land, a stratum unit or a long-term lease that is eligible for the margin scheme, the GST on the supply is 1/11th of the margin for the supply.

21.              The margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the interest, unit or lease in question.[2] However, in certain circumstances, the valuation method is used to calculate the GST on the supply of real property.[3] Under that method the taxpayer accounts for GST on the difference between the sale price and the market value of the real property at the specified date.

22.              If a taxpayer uses the valuation method, the taxpayer must obtain an approved valuation for the real property as at the relevant date. The relevant valuation date is 1 July 2000, or if the taxpayer was not registered or required to be registered until after 1 July 2000, the earlier of the date of effect of the taxpayer's registration or the date of the taxpayer’s application for registration.

23.              An approved valuation is a valuation that satisfies the requirements for making valuations for the purposes of Division 75 as determined by the Commissioner.

24.              For the purposes of calculating the margin for taxable supplies of real property made on or after 1 December 2005 but before the commencement date of this determination, the requirements for three valuation methods are set out in MSV 2005/3. A valuation made in accordance with those requirements is an approved valuation. Earlier margin scheme valuation requirements determinations apply to taxable supplies of real property made before 1 December 2005.

25.              A taxpayer may self-assess the amount of GST payable under the margin scheme, for example, on the basis of a valuation made by a professional valuer that meets the requirements in MSV 2005/3.

26.              Subsequently, the Commissioner may determine that the valuation does not meet the requirements specified in MSV 2005/3 and is therefore not an approved valuation. If the taxpayer has been notified by the Commissioner that its valuation is not an approved valuation and the taxpayer does not obtain a valuation that satisfies the requirements of MSV 2005/3, the Commissioner would issue an assessment (or an amended assessment) of the relevant amount of GST using the consideration method under subsection 75-10(2).

27.              Similarly, if a taxpayer does not produce a valuation because, for example, the taxpayer holds the view that no taxable supply of real property is made, the Commissioner would issue an assessment (or an amended assessment) of the relevant amount of GST using the consideration method under subsection 75‑10(2).

28.              However, in circumstances involving real property acquired before 1 July 2000, application of the consideration method may result in GST payable on value added to the real property prior to the commencement of, or entry into, the GST system. This is contrary to the policy intent of Division 75 which is to only tax value added after the commencement of, or entry into, the GST system.

29.              This determination provides for the Commissioner to obtain a valuation for the purposes of subsection 75-10(3) in these circumstances to ensure that the policy intent of Division 75 is achieved.

30.              Method 4 in the determination allows the Commissioner to obtain an approved valuation in specified circumstances and calculate the margin using that valuation so that GST is payable only on the value added after the commencement of, or entry into, the GST system.

Requirements for making valuations

31.              The determination specifies the requirements that must be met for making valuations in respect of four valuation methods.

32.              Methods 1, 2 and 3 are in respect of valuations made for the purposes of subsections 75-10(3), 75-11 and 75-22.

33.              Method 4 is only in respect of valuations made for the purposes of subsection 75‑10(3).

Method 1: valuation by a professional valuer

34.              The requirements under method 1 replicate the requirements specified in MSV 2005/3.

35.              In the draft determination circulated for consultation, draft subclause 13(5) provided that the valuation of the interest, unit or lease be made on an ‘as is’ basis. However, the feedback received was that the meaning and intention of the phrase ‘as is’ was unclear.

36.              The intention of draft subclause 13(5) was to make specific reference to determining market value for contaminated real property. Subclause 13(3) (of the draft and finalised determination) provides that the valuation must determine the market value of the interest, unit or lease at the valuation date.

37.              We now consider that this aspect is more clearly addressed by way of comment in this explanatory statement.

38.              If, at the date of valuation, the subject real property is contaminated, its market value is determined on the basis of its contaminated condition at the valuation date and not as adjusted to its remediated condition. The valuation would only take into account the value added by any remediation of the property up to the valuation date.

39.              Determining the market value of contaminated real property on this basis means that GST is payable on value added by any remediation works carried out after the valuation date. This is consistent with the policy intent of Division 75 which is to tax value added after the commencement of, or entry into, the GST system.

40.              It follows that to the extent that contaminated real property is remediated after the valuation date, an entity that is entitled to claim input tax credits for acquisitions relating to that remediation is not also able to reduce the margin upon which the GST is calculated by the value of the remediation works to be carried out after the valuation date.

41.              This is consistent with the underlying policy of Division 75 as articulated in paragraph 6.102 of the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 as follows:

You should not include the cost of any improvements made since 1 July 2000 to the real property and premises when calculating the original purchase price.  You will have already received an input tax credit for GST paid on the improvements.  If the value of the improvements was added to the original price or the value of the real property or premises at 1 July 2000, the amount of GST payable would be reduced by an amount equal to the input tax credit available on the improvements.  In other words, you would receive a double benefit.

42.              The following comments made by Stone J. in Sterling Guardian Pty Limited v. FC of T[4] in considering the application of Division 75 are also noted:

To my mind the position is clear: in calculating the margin for a supply a taxpayer cannot take into account the cost of a taxable supply “on which the GST was worked out without applying the margin scheme”, namely a taxable supply that yielded input tax credits for the taxpayer.  To hold otherwise would subvert the purpose for which the margin scheme was included in the GST Act.[5]

Method 2: valuation based on the consideration received by the supplier under the contract of sale

43.              The requirements specified in clause 14 of the determination are amended to make clear the difference between this method and the calculation of the margin under subsection 75-10(2). These amendments do not change the requirements for making a valuation under method 2 as set out in MSV 2005/3.

44.              The requirements set out under method 2 in MSV 2005/3 refer to a valuation based on the consideration provided by a purchaser in a contract for the sale and purchase of the real property executed or exchanged before the valuation date by parties dealing at arm’s length. At first blush, it might be thought this method is no different from the consideration method under subsection 75-10(2).

45.              Therefore, the requirements for this method have been reworded making it immediately clear that this method is not the same as the consideration method.

46.              Rather than referring to the consideration provided by the purchaser, method 2 refers to the consideration received by the supplier under the contract of sale for the interest, unit or lease.

47.              This method can only apply if the contract is executed or exchanged before the valuation date and settlement occurs after that date. In these limited circumstances, the valuation of the interest, unit or lease would be the same as the consideration for the supply of the interest, unit or lease. Under this valuation method, the margin for the supply is nil.

Method 3: State Government or Territory Government department valuation

48.              The requirements set out in the determination under method 3 refer to a valuation made by or on behalf of a State or a Territory Government department for rating or land tax purposes. 

49.              The requirement specified in subclause 16(1) is amended to delete the reference to the ‘unimproved value, the site value, or the capital value of the land’ as stipulated under method 3 in MSV 2005/3.

50.              This amendment ensures that a valuation made by or on behalf of a State or a Territory Government department for rating or land tax purposes is eligible as an approved valuation under method 3 regardless of how the valuation may be described under the relevant State or Territory legislation.

Method 4  valuation obtained by the Commissioner in certain circumstances

51.              The requirements under method 4 provide for the Commissioner to obtain a valuation that is an approved valuation in certain circumstances.

52.              The Commissioner may obtain an approved valuation under method 4 if all of the following circumstances apply:

(1)         for the purposes of calculating the margin under subsection 75-10(3), the supplier has not produced a valuation to the Commissioner or the valuation produced is not an approved valuation;

(2)         the Commissioner has provided a notification in writing to that effect to the supplier (incorporating, where applicable, the reasons for not accepting the valuation produced is  an approved valuation) and advised that the supplier must produce an approved valuation to the Commissioner within 8 weeks;

(3)         the supplier does not produce an approved valuation to the Commissioner within that 8 weeks or any extended time which the Commissioner for good reason allowed;

(4)         the margin (in the absence of an approved valuation being produced by the supplier) would be calculated under subsection 75-10(2);

(5)         the margin, if calculated under subsection 75-10(2), would result in GST payable on value added to the real property prior to the commencement of, or entry into, the GST system; and

(6)         the margin, if calculated using a valuation obtained by the Commissioner, would be less than the margin calculated under subsection 75‑10(2).

53.              By obtaining an approved valuation in these circumstances the Commissioner is able to ensure that GST is only payable by the supplier on the value added to the real property after the commencement of, or entry into, the GST system in accordance with the policy intent of Division 75.

54.              The precondition specified in subparagraph 52(6) above means that the Commissioner cannot apply a valuation obtained under method 4 to calculate the margin if the application of the consideration method under subsection 75‑10(2) produces a lower margin, and therefore a lesser GST liability for the supplier. This would occur if, for example, the valuation of the interest, unit or lease as at the valuation date is less than the consideration for the acquisition of that interest, unit or lease.

55.              For taxable supplies of real property made on or after 1 March 2010, the valuations that may be obtained by the Commissioner are the same as those described as methods 1, 2 and 3 in this determination. The requirements for making those valuations are also the same as those described in this determination for each method (other than the requirements as to when the valuation must be made and the date the valuation was provided to the supplier).

56.              For example, if a taxpayer produces a valuation by a professional valuer that is not an approved valuation because it is not made in accordance with the requirements in this determination, the taxpayer can, within the stipulated time frame, choose to have that valuation rectified, obtain a valuation from another professional valuer or use another valuation method. The valuation method in the latter instance would most likely be method 3 as method 2 only applies in limited circumstances (see paragraph 47 above). If the taxpayer does not produce an approved valuation to the Commissioner within the stipulated time frames, an approved valuation, if obtained by the Commissioner under method 4, would correspond with the valuation methods and the requirements specified in this determination for valuations obtained by the taxpayer.

57.              For taxable supplies of real property made before 1 March 2010, the valuation obtained by the Commissioner must be based on one of the same valuation methods available to the taxpayer under the margin scheme valuation requirements determination that was in force when the supply was made. Further, the requirements for making that valuation are the same requirements determined in that earlier margin scheme valuation requirements determination (other than the requirements as to when the valuation must be made and the date the valuation was provided to the supplier).

58.              For example, a taxpayer may self-assess the amount of GST payable under the margin scheme on the basis of a valuation made by a professional valuer that meets the requirements under method 1 in MSV 2000/2. Subsequently, the Commissioner may determine that the valuation does not meet those requirements and is not an approved valuation. Provided all the preconditions for the application of method 4 are satisfied, the Commissioner may obtain a valuation based on the method and requirements specified in MSV 2000/2 (other than the requirements as to when the valuation must be made and the date the valuation was provided to the supplier). Such a valuation obtained by the Commissioner would be an approved valuation for the purposes of subsection 75-10(3).

59.              If the Commissioner was able to use a valuation method different to that available to the taxpayer or obtain a valuation based on requirements that did not apply at the time the relevant supply was made, a taxpayer may be disadvantaged. Stipulating that a valuation obtained by the Commissioner for supplies made before the commencement date of this determination can only be made in accordance with the valuation methods and requirements applicable at the time the relevant supply was made ensures that this is not the case.

60.              While the Commissioner has the same choices of valuation method available to taxpayers under the determination in force at the time of the supply, the Commissioner is not required to use the same valuation method that may have been employed by the taxpayer. The choice of valuation method for a valuation obtained by the Commissioner necessarily depends on the facts and circumstances of a particular case. This choice is to be made on a fair and reasonable basis having regard to the specific facts and circumstances.

61.              Whatever valuation is obtained and utilised by the Commissioner, the taxpayer will not be adversely affected as the Commissioner can only utilise that valuation to calculate the margin if:

• the margin, otherwise calculated under subsection 75-10(2), would result in GST payable on value added to the real property prior to the commencement of, or entry into, the GST system; and
• the valuation obtained by the Commissioner results in a lesser margin than would otherwise be calculated under subsection 75-10(2).

62.              If the Commissioner obtains a valuation under method 4, and it is used to calculate the margin to assess the GST payable, the Commissioner will provide a copy of the valuation to the supplier.

What is the real property that is valued?

63.              The real property that is valued is the interest, unit or lease that is in existence at the valuation date. This will not always be the real property that is supplied by the supplier.

64.              The real property that is supplied is often not in existence at the valuation date. Examples of this are:

• land that is acquired as broad acres and is later subdivided and sold; and
• land on which strata units are built.

65.              It is not appropriate in these circumstances to value the subdivided land or the stratum units as if they existed at the valuation date. Instead, the real property that existed on the valuation date is valued, and then that value is apportioned on a fair and reasonable basis to ascertain the part of the valuation that relates to the real property that is supplied. In the example of subdivided land, the broad acres are first valued and then an apportionment is undertaken, while for the strata units, the land on which the units are built is first valued and then apportioned.

66.              If the supply of real property is a mixed supply because it has separately identifiable taxable and non-taxable (i.e. GST-free or input taxed) parts, the valuation is of the entire interest, unit or lease in existence at the valuation date. This valuation is apportioned on a fair and reasonable basis to ascertain the part of the valuation that relates to that part of the interest, unit or lease that is supplied as a taxable supply under the margin scheme.

Time to make valuations

67.              To work out the margin for the supply of real property, a valuation is required as at the valuation date. The valuation process itself does not have to be undertaken on that date.

If, on or before the making of the supply, the supplier and recipient have agreed in writing that the margin scheme is to apply

68.              The valuation, other than a valuation obtained by the Commissioner under method 4, must be made by:

(a)         the due date for lodgement of the supplier’s Business Activity Statement for the tax period to which the GST on the supply is attributable, or

(b)         the end of an additional period that the Commissioner may for good reason allow.

If, on or before the making of the supply, the supplier and recipient have not agreed in writing that the margin scheme is to apply

69.              If the Commissioner has allowed a further period under paragraph 75-5(1A)(b), the valuation must be made by the later of:

(a)         8 weeks from the end of the further period that the Commissioner has allowed the parties to agree in writing that the margin scheme is to apply to the supply; or

(b)         8 weeks from the date of the Commissioner's decision to grant the parties a further period to agree in writing that the margin scheme will apply; or

(c)          the last day of an additional period that the Commissioner may for good reason allow.

70.              The periods referred to in subparagraphs 69(a) and 69(b) have been extended from 6 weeks to 8 weeks in recognition of the period of time it may take to obtain an approved valuation.

71.              Generally the later of the two periods specified in subparagraphs 69(a) and 69(b) will be that specified in subparagraph 69(a). However, in limited circumstances, the period specified in subparagraph 69(b) may be the later one.  Example 1 illustrates this.

Example 1 – applicable period to obtain a valuation

72.              Geoff Jay Pty Ltd, which lodges its activity statements monthly, acquired real property from an associate before 1 July 2000 for consideration that was less than market value.  It makes a taxable supply of the real property to Greg Bee Pty Ltd on 30 May 2009. The parties sign the agreement to apply the margin scheme on 3 June 2009 and calculate the margin for the supply under subsection 75-10(2).

73.              Subsequently the Tax Office undertakes an audit on Geoff Jay Pty Ltd and advises the company that the written agreement to apply the margin scheme should have been made on or before 30 May 2009. Geoff Jay Pty Ltd requests the Commissioner to exercise his discretion under paragraph 75-5(1A)(b).

74.              On 30 June 2009 the Tax Office sends Geoff Jay Pty Ltd a letter stating that the Commissioner has exercised his discretion in paragraph 75-5(1A)(b) to extend the time for making the written agreement to 3 June 2009, the date on which the agreement was made. In the letter, the Tax Office states that as Geoff Jay Pty Ltd acquired the real property from an associate before 1 July 2000 for consideration that was less than market value, the margin for the supply is calculated with reference to paragraph 75-11(7)(c). To calculate the margin for the supply in accordance with paragraph 75-11(7)(c) Geoff Jay Pty Ltd requires an approved valuation of the real property as at 1 July 2000.

75.              In this instance, the two relevant periods are (a) 8 weeks from the end of the period allowed for agreeing to use the margin scheme (8 weeks from 3 June 2009) and (b) the end of 8 weeks from date of the Commissioner's decision to allow a further period (30 June 2009). The later of the two periods is 8 weeks from 30 June 2009.

76.              Therefore, Geoff Jay Pty Ltd must obtain the valuation by the end of 8 weeks from 30 June 2009.

77.              If a supplier has not produced an approved valuation to the Commissioner and does not provide an approved valuation within 8 weeks of being notified by the Commissioner or by the end of any additional period allowed by the Commissioner, an assessment may be issued utilising an approved valuation obtained by the Commissioner. Example 2 illustrates this.

Example 2 – assessment made utilising a Commissioner obtained valuation

78.              Lock Pty Ltd makes a taxable supply of real property that it acquired before 1 July 2000 to Key Pty Ltd on 30 September 2010. Both parties sign the agreement to apply the margin scheme on 3 June 2010 and calculate the margin for the supply.

79.              Lock Pty Ltd obtains a written valuation upon which it determines the margin for the supply under subsection 75-10(3).

80.              The supply of the real property by Lock Pty Ltd is the subject of an audit undertaken by the Tax Office. In the course of the audit, the Tax Office notifies Lock Pty Ltd that the valuation obtained is not an approved valuation as it does not meet the requirements set out under method 1 contained in the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 (‘MSV 2009/1’).  The notification advises Lock Pty Ltd that it has 8 weeks from the date of the notification to provide the Tax Office with an approved valuation. 

81.              Lock Pty Ltd does not provide an approved valuation to the Tax Office within 8 weeks of the date of the notification.

82.              The Tax Office obtains a written valuation that complies with the requirements specified under method 4 of MSV 2009/1.

83.              The Tax Office issues an assessment to Lock Pty Ltd. The margin determined under subsection 75-10(3) upon which the GST for the supply of the real property is calculated is based upon the approved valuation obtained by the Commissioner.

Consultation:

84.              This determination has been the subject of extensive consultation with the tax and accounting professional bodies (‘professional bodies’) and relevant groups and associations in the property and construction industry (‘industry groups’).

85.              Some professional bodies and industry groups requested that the notification by the Commissioner that a valuation is not an approved valuation be in writing with reasons as to why the valuation produced is not accepted as an approved valuation. The determination has been amended accordingly. The reasons given in the notification by the Commissioner will provide the taxpayer with a meaningful basis upon which to rectify a valuation to meet the requirements of the determination.

86.              Further, some professional bodies had concerns about the authority of the Commissioner to retrospectively apply method 4, notwithstanding that method 4 is only to the advantage of taxpayers who would otherwise have a greater GST liability under subsection 75-10(2).

87.              The effect of subsection 12(2) of the Legislative Instruments Act 2003 is that a legislative instrument or provision of a legislative instrument can commence before the date it is registered provided it does not operate retrospectively to adversely affect the rights and liabilities of a person other than the Commonwealth.

88.              This determination meets that proviso. The Commissioner can only obtain a valuation if:

• the supplier does not produce an approved valuation to the Commissioner within the specified time frame;
• the margin would otherwise be calculated under subsection 75-10(2),
• the margin if calculated under subsection 75-10(2) would result in GST payable on value added to the real property prior to the commencement of, or entry into, the GST system; and
• the margin, if calculated using a valuation obtained by the Commissioner, would be less than the margin calculated under subsection 75‑10(2).

89.              Thus, the valuation used by the Commissioner will only ever produce a lesser GST liability for supplies made by the taxpayer before 1 March 2010 than would otherwise arise where the taxpayer fails to produce an approved valuation and subsection 75‑10(2) applies.

90.              Also, a taxpayer retains the right to object under Part IVC of the TAA to the indirect tax assessment the Commissioner makes of the taxpayer’s net amount for a particular tax period as a result of calculating the margin for the supply of the real property using a valuation obtained under method 4 of the determination.

91.              There was also a view expressed that any valuation obtained by the Commissioner in respect of supplies of real property made prior to the commencement of the determination should be prepared with reference to the valuation requirements under the margin scheme valuation requirements determination that was in force at the time of the supply. We agree with this view and the determination has been amended accordingly. This approach eliminates any possibility that a taxpayer could be disadvantaged if the Commissioner were able to obtain a valuation based on requirements different to those in force when the supply was made.

92.              In summary, both the determination and this explanatory statement have been amended to make clear that retrospective application of method 4 does not adversely affect the rights or liabilities of the taxpayer. Rather it has a beneficial effect only.

93.              Certain professional bodies expressed concern that the Commissioner is able to use any one of the three valuation methods referred to in this determination. It was considered that the Commissioner should be obligated to obtain a valuation that reasonably minimises the taxpayer’s liability. Another view was that the Commissioner should use the same valuation method employed by the taxpayer.

94.              If the Commissioner does not accept that a valuation produced by a taxpayer is an approved valuation, the taxpayer could choose to use another valuation method available under the relevant margin scheme valuation requirements determination in force at the time of the supply instead of amending the original valuation to conform to the valuation requirements. The Commissioner therefore has the same choices of valuation method available to taxpayers where the valuation produced by the taxpayer is not an approved valuation.

95.              In making a choice, the Commissioner must take into account all the facts and circumstances in a particular case. That choice is to be made on a fair and reasonable basis having regard to the specific facts and circumstances. Whatever valuation is obtained and utilised by the Commissioner, there will only ever be a lesser GST liability for supplies made by the taxpayer before 1 March 2010 than would arise as a result of the application of subsection 75-10(2).

96.              An industry representative considered that the definition of professional valuer should refer to accredited members of particular professional valuation bodies. The definition at clause 24 of the determination has been amended to include accredited members of those bodies.

97.              There was also feedback received from professional bodies that the meaning of the term ‘on an as is basis’ referred to in one of the valuation requirements under method 1 was unclear. The requirement was intended to be specifically directed at determining market value for contaminated land. Although the term is commonly used by professional valuers, it was decided to omit that requirement from the determination and refer to the market value of contaminated land in this explanatory statement (refer paragraphs 35 to 42 above).  

98.              Another professional body expressed concern that the Commissioner is confined to obtaining a valuation in 8 weeks. The concern was that all parties could be disadvantaged if the Commissioner is unable to obtain a valuation in that time period. The 8 week time frame has therefore been deleted.

Shane Reardon

Deputy Commissioner of Taxation

14 October 2009

Subject References: freehold interest
long-term lease
margin
margin scheme
real property
stratum unit
taxable supply
valuation

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
 

Paragraph 75-5(1A)(b)

Division 75

Subsection 75-10(2)
Subsection 75-10(3)
Paragraph 75-10(3)(b)
Section 75-11

Section 75-22
Section 75-35

Subsection 75-35(1)

Legislative Instruments Act 2003

Subsection12(2)

Related Legislative Determinations:
F2006B01549 - MSV 2000/1 - Completed premises
F2006B01564 - MSV 2000/2 - Partly completed premises
F2005L00726 - MSV 2005/1 - Additional valuation method
F2005L01808 - MSV 2005/2 - Costs of completion method
F2005L02565 - MSV 2005/3 - Completed premises

Related Ruling/Determinations:
GSTR 2000/21
GSTR 2000/21A
GSTR 2000/21ER
GSTR 2006/8

Case references:

Sterling Guardian Pty Limited v. FC of T 2005 ATC 4796; 60 ATR 502

Other references:

Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998

[1] Subsection 12(2) of the Legislative Instruments Act 2003 provides that a retrospective legislative instrument (or provision of that instrument) will be of no effect if it applies to adversely affect the rights or liabilities of any person other than the Commonwealth.

[2] Subsection 75-10(2).

[3] Subsection 75-10(3) and section 75-11.

[4] Sterling Guardian Pty Limited v. FC of T 2005 ATC 4796; 60 ATR 502. 

[5] Sterling Guardian Pty Limited v. FC of T 2005 ATC 4796 at 4807; 60 ATR 502 at 515.